encodingmacosvideoyoutube
Video is less than 5 minutes long, standard 4:3 aspect ratio (@ 640×480), imported from a digital camera, edited in Mac OS X with iMovie '09 and has a stereo, musical soundtrack.
What encoding method should I use to get the best quality possible when played back on YouTube?
This is more up to the content creator than a definitive answer. Letter-boxing, in my opinion or the correct way to deal with this issue. Viewers do not lose any of the content and the impact is minimal for the content creator.
If you go the resizing route to fill the full width of the screen you would have to film each of your videos with this in mind making sure you don't put any valuable content on the top or bottom edges of the screen.
As a viewer, I don't mind seeing letter-boxed video. We've had to watch it ever since wide-screen DVDs were released and we will continue to see it until wide-screen TVs and content are ubiquitous.
From the list of options for ffmpeg, it appears that when re-encoding you can choose from a variety of scaling algroithms, which leads me to believe you could get (slighly) better quality by re-encoding at a higher resolution rather than playing a smaller resolution video scaled up in real time.
Selects the algorithm used to resize the image. Choose the default "fast-bilinear" when speed is important. For better image quality but slower encoding, you can choose either Bicubic (best for upscaling, ie scaling to a larger size), Bilinear (best for downscaling, ie scaling to a smaller size than source), Lanczos, or Bicubic spline (sharp picture).
Best Answer
As you are using iMovie 09 you really don't need to worry about it.
When you go Share > youTube it has 4 different sizes to choose from (480x360, 640x480, 720x540 an 1280x720).
Depending on your input video, not all the options may be available.
You should pick the highest quality that you can, iMovie will then export and upload, and youTube will post process your file down smaller if necessary.